Will Natural Gas Remain above $3 Next Week?


Oct. 27 2017, Updated 4:20 p.m. ET

Natural gas’s implied volatility

On October 26, natural gas (UNG)(BOIL) futures’ implied volatility was at 38.3%—3.4% above the 15-day average.

Usually, natural gas (GASL)(GASX) futures and gas’s implied volatility are inversely related. On March 3, 2016, the implied volatility was at 53.8% and natural gas futures were at their 17-year lowest closing price. Between March 3, 2016, and October 26, 2017, natural gas futures rose 76.3% while implied volatility fell 28.8%.

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Next-seven-day price range

With a probability of 68%, natural gas active futures could close between $2.89 and $3.21 per MMBtu (million British thermal units) in the next seven days, given natural gas’s implied volatility of 38.3%. In this model, prices are normally distributed with a standard deviation of one.

On October 26, natural gas December futures closed at $3.05 per MMBtu. So there’s a possibility that US natural gas futures could fall below the $3 mark, which could negatively impact ETFs like the United States Natural Gas Fund LP (UNG), the ProShares Ultra Bloomberg Natural Gas (BOIL), and the First Trust ISE-Revere Natural Gas ETF (FCG). These ETFs are meant to track natural gas futures.

For more updates on natural gas prices, see Are Natural Gas Prices Set to Rise?


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